How to use the rules around you to truly follow the trend?

In the market, trends tend to have a certain degree of sustainability. Once a trend forms, it may last for a while until it encounters important resistance or support levels, or is affected by new drivers, it may change direction. Following trends can use this continuity to make profits. Therefore, this article EagleTrader wants to introduce a trading strategy based on trend tracking – the four-week rule, which provides more options for traders to choose from.

Basic principles of the surrounding rules

The core of the four-sided rules is to identify and follow the long-term trends of the market. Specifically, traders judge the current trend direction by observing price movements over the past four weeks. If the price continues to rise in the past four weeks, forming a series of higher highs and higher lows, the market is considered to be in an upward trend; conversely, if the price continues to fall, forming a series of lower lows and lower highs, the market is considered to be in a downward trend.

Generation of trading signals

Buy Signal: Traders can consider buying when the price forms a series of higher highs and higher lows over the four weeks. At this time, the market’s upward trend is more obvious and the buying signal is more reliable.

Sell signal: Traders can consider selling when the price forms a series of lower lows and lower highs over the four weeks. At this time, the market’s downward trend is more obvious, and the selling signal is more reliable.

Stop loss and take profit settings

Stop loss settings: The stop loss point should be set below the key level of the trend reversal. For example, in an uptrend, the stop loss point may be set below the nearest low point.

Stop profit setting: The take profit point can be set according to the market’s volatility amplitude and the intensity of the trend. Generally, the take-profit point can be set as an extension line of the trend line or a certain multiple of the price fluctuation range.

Risk Management

Fund management: allocate funds reasonably to avoid investing too much money into a single transaction. It is generally recommended that the risk of each transaction shall not exceed 2%-5% of the account funds.

Continuous monitoring: The market is constantly changing, and traders need to continuously monitor market dynamics and adjust trading strategies in a timely manner.

Four-week rule trading strategies have become the first choice for many traders to follow the trend for their simplicity and effectiveness. It helps traders maintain clear trading ideas in complex market environments and avoid over-analytics and emotional trading. However, no strategy is omnipotent. Traders need to flexibly use and adjust strategies based on their own experience and market conditions to achieve stable trading returns.